Lloyd Omdahl, Published October 30 2011
Retail act is about fairnessChances are good that you have been a tax dodger. Unknowingly, of course.
If you bought a book from Christianbook, you didn’t pay the sales tax because Christianbook is not required to collect the North Dakota sales tax. Yet if you walked into a local bookstore and bought that same book, you would be assessed a state sales tax of 5 percent plus the local levy.
If you bought your gardening supplies from the Jung’s catalogue, you would not pay the sales tax. Yet if you bought that material from a local store, you would pay the state sales tax.
Now this situation hardly seems fair to the local retailer. He (or she) is at a 5 percent disadvantage. That’s the conclusion we came to in 1939 after a few years of taxing sales. So we passed a supplemental tax with the same rate as the sales tax and called it the use tax. It was intended to cover sales to folks who hadn’t paid the sales tax.
While the long arm of the state tax commissioner couldn’t reach out-of-state retailers under the sales tax, it could reach the purchasers with the use tax. So they – the buyers of that book from Christianbook or those gardening supplies from a catalogue – were required by the law to compute the unpaid sales tax and send it as the use tax to the tax commissioner.
A couple of problems with the use tax law. First, most people don’t realize that the state law requires them to forward their use tax to the tax commissioner. Second, there are too many untaxed purchases (and untaxed purchasers) to make general enforcement of the use tax law feasible. An army of clerks would be required.
So through the years, the pressure has been building to get the out-of-state catalogue and online sellers to collect the tax. However, in 1992, the U.S. Supreme Court ruled that the complexity of the sales tax regulations in states and thousands of local governments was too burdensome.
In response, the states have been reducing this complexity by developing uniform practices and definitions in what they now call the Streamlined Sales Tax Project. A software package has been developed to make it easier for interstate businesses to comply with sales and use tax laws. Complexity is on the run.
While working to remove burdensome compliance problems, the states are now supporting the bipartisan Main Street Fairness Act in Congress. This act would require interstate retailers to collect and remit sales taxes on their sales regardless of their locations.
Recently, Tax Commissioner Cory Fong and Sen. Dwight Cook, R-Mandan, provided an article for newspapers encouraging the state’s congressional delegation to support the act. (Cook is a member of the governing board for the Streamlined Sales Tax Project.)
They were severely criticized by someone who thought this was levying a new tax on the consumers. Not so. The use tax obligation has been on the books for 60 years. It looks like factors are finally coming together to make it unnecessary to tolerate this unfair competition for local retailers. The applicable cliché is “leveling the playing field.”
For North Dakota, it’s more about fairness than money. We don’t need money. We are not looking at a new tax but resuscitating an old one.
I am doubtful that sales tax collection will curtail sales by Amazon, other online sellers or catalogue marketers. Prices, variety and product availability will still be significant factors in consumer decisions. But fairness is the issue.
Omdahl is a former North Dakota lieutenant governor and retired University of North Dakota political science teacher.